Pricing Behavior in the UK Wholesale Market for Petrol 1970-80: A "Structure-Conduct" Analysis

Abstract

THE objective of this paper is to contribute to a better understanding of pricing in the markets for manufactured goods through a detailed examination of pricing behaviour in the UK wholesale market for petrol between 1970 and 1980. The UK petrol market is particularly suitable as a case study in pricing behaviour because of the availability of information and the changes in pricing behaviour observed over the period. During the 1970s changes in market structure and supply conditions combined to force a breakdown in the longestablished coordination of the major suppliers' wholesale prices, giving way to periods of intense price competition. Earlier studies of competition in the industry have concentrated upon the pricing practices of the major suppliers [171 and on changes in market structure [6]. This paper extends and develops the examination of pricing behaviour, first, by concentrating upon a period characterised by unprecedently traumatic changes in market conditions and pricing behaviour and, second, by incorporating more comprehensive information on pricing drawn from industry sources and from reports by the Monopolies and Mergers Commission [91, Department of Prices and Consumer Protection [31 and Price Commission [11], [121, [13], [14]. The approach followed is to examine petrol pricing behaviour as an application of a simple industrial organisation model of oligopoly pricing. In the light of a structure-conduct analysis of pricing (section I), the principal structural features of the UK petrol market likely to influence pricing behaviour are identified (section II). Predictions are made concerning the nature of pricing behaviour in the industry and the changes in pricing behaviour which might be induced by structural change, (section III) and these predictions are tested out by an examination of pricing behaviour over the period (section IV).